Bond A, issued by a firm, Kapa Corp, is a two-year annual coupon bond and pays a 6% coupon rate. Lisa evaluates similar bonds and estimates a recovery rate of 40% and a conditional probability of default of 3.0%. The one- and two-year risk-free par rates are 3.00% and 4.00%, respectively. Interest rate volatility is assumed to be 0%. She estimates spot and forward rates in each year based on the par rates curve, shown in the following: Year 1 2 Par Rates 3.0000% 4.0000% Spot Rates 3.0000% 4.0202% Forward Rates 3.0000% 5.0505% Then, he follows the following steps to value the bond: Step 1: Estimate credit valuation adjustment (CVA) for the bond A. Step 2: Estimate the value of an otherwise equivalent risk-free bond (VND). Step 3: Value the bond A.